Bidding error sees Finnish day-ahead power price tumble
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The short version is that electricity delivery forecast is managed by a financial optimization process. Market participants (generators, line owners, and consumers) basically buy and sell their electricity in advance. Sometimes as far ahead as 2 years, all the way up to the day before (at which time the real time market takes over IIRC).
So in addition to the primary stakeholders you have financial participants that buy/sell electricity without having access to any apparatus for the generation/transmission/consumption. These participants sometimes have very manual processes for buying their contracts.
My guess would be some poor fresh grad was under supervised and transposed the source and sink address. Instead of buying at 203.40 they sold at 203.40 by reversing the source and sink.
I guess the buy/sell in advance lets generators etc fund projects ahead of time (maint, expansion, etc) instead of always living hand to mouth on "real time sold" and without having to land "huge multi-year contracts", so the market can be a bit more fluidly priced? (Maybe too fluidly in this case!)
If you want to buy a solar panel with a useful life of 10 years there’s basically no way to estimate how much revenue it will make. But if I promise to pay you $10 for that energy all year, you have some idea if your purchase makes sense.
Made up numbers obviously, as I know someone is just waiting to “well akshually” me.
1) If the contract is physically settled vs financially settled. 2) The existence of a clearinghouse - which is a middleman in charge of making sure both parties deliver on their contractual obligations. Virtually all futures contracts go through a clearinghouse.
Lets assume that it is physically settled with no clearinghouse - what happens is the same as any other contract where the other party does not deliver on the terms of the contract (also known as FTD - failure to deliver).
You sue them for the damages.
It also depends whether you’re trading future that settle for cash (you buy for 5k and they give you 20k cold hard cash) or whether they’re actually going to send a semi truck to your farm, in which case they should have been holding enough collateral for such an incident.
Realistically, I believe most futures are cash settled and you’d probably be better off pocketing the extra 15k and spending 5k on planting a different crop this year.
Also note that though these markets are "free" they are still extremely highly regulated. I don't know much about the Finnish market but I've built trading algorithms for CAISO and PJM, and it is by no means a free-for-all. The rules about what types of entities can participate in which aspects of the market are quite strict and detailed.
Especially post-ENRON there is a strong focus on avoiding even any possibility of appearance of market manipulation. Basically the guidance from our lawyers was: every trade needs to have a strong, explicable economic rationale (apart from the market.) In our case we didn't even want to use neural-network based trading algorithms, since they (at the time) weren't sufficiently explicable for us to have a "rationale" for a trade that might later be called into question.
This latter one led the government having to open a line of credit for tens of billions euros last winter when the prices were high just so the actual producers could afford to sell their (historically highly priced) electricity as the money you have to leave in escrow/insurance price is tied to the SPOT price.
Trying to view things as “late stage capitalism” isn’t a good way to really understand anything. It’s a cynical Reddit trope that assumes malice from the start, which doesn’t leave much room for a real explanation.
The reality is that trading like this is a type of contract and it takes two parties to enter into the contract voluntarily. Nobody is forced to trade energy contracts this way, but it can be helpful for both parties to do things like lock in more predictable pricing, hedge certain types of risks, and agree to mutual contracts that benefit both parties’ businesses.
Energy prices going negative sounds like something evil or malicious or “late stage capitalism” to the uninitiated, but even without trading errors there are legitimate reasons to have negative energy prices at certain times of day. For example, certain types of power plants like nuclear can’t quickly ramp up or down as demand changes. A power company might come out ahead by pricing power negative (that is, paying people to consume it) for certain night time hours if it allows them to keep the power plant at a higher, continuous output in preparation for peak times. Energy hungry industries such as aluminum manufacturing or other industrial processes might gladly adjust their production schedules to operate during these times to take advantage of the low or negative pricing. Everybody wins.
There are numerous dynamics like this at play. It’s not a “late stage capitalism” thing, despite how some people like to sneer at anything they don’t understand. There are legitimate reasons to operate this as a market and let market participants work out optimal deals.
If your output regularly drops to low / negative levels - invest in storage and sell when the price is higher. If it occurs grid wide - interconnect to neighbouring grids.
Markets come in all shapes and sizes, and in reality you can't write up any contract you like — nor should you be able to. Indeed, electricity markets must be tightly regulated due to shared infrastructure, which is an example of the fact that these markets don't arise simply from the application of a fundamental "allow people to enter into whatever agreements they like" principle, but rather requires pragmatic _design_.
Ultimately, we, as collectives, decide what the rules of the game are. In the case of electricity, the need for innovation and flexibility to decarbonise the grid are perfectly acceptable justifications for adopting market solutions (the only real alternative being to allow the State to monopolise the whole system, which would come with its own serious and disruptive trade-offs); but ultimately, this is a _system_ that we decide on, and it doesn't arise out of natural rights, and systems can be more or less well-designed. I think you touch on this in your comment as well.
Markets aren't evil, but nor are they naturally good. They are a tool in our toolbox for constructing resource allocation systems. And the success of a system, and indeed _the_ system as a whole, must consider all the interlocking economic and social consequences — and it's anxiety about those that the "late-stage capitalism" trope really reflects. It's not something to dismiss altogether.
As a tangent, it would be interesting to see if non-pathetic modern computer systems could actually achieve to implement that mechanism successfully. But if sci-fi is to be believed, that could easily fall into another form of dystopia.
You might find this interesting: https://en.m.wikipedia.org/wiki/Project_Cybersyn
Of course the fundamental problems of unfairness and poor people paying more for electricity than big industrial users can also be attributed to properties of how the market is managed and regulated by the public (the classic "critique of free market" -> "not free enough, ergo not fault of free markets" trope).
Besides generation, this also enables pricing and funding of energy storage. Eg you could use historical data to see how profitably you could play production peaks and lows to charge/discharge battery storage, and use fairly well known risk management stats for the uncertainty factors.
If you play a game like Prosperous Universe, there is no delivery problem on the central commodity exchanges and the commodity exchange has infinite storage capacity. When you buy something, you instantly receive the commodity.
If you want to know why there are duration differences on the contract beyond the delivery itself, e.g. why someone would issue the contract 3 months or 6 months before delivery, then the reason is that they want to minimize income fluctuations or to pay off specific contracts. Similar to how businesses want to turn capex into opex at exactly the rate the money comes in, but this time the goal is for the income to arrive at the same time as the expenses.
Actually for many commodities there is: https://www.cmegroup.com/trading/metals/base/base-metals-war...
But of course not for electricity.
(note: haven't found a permanent link to today's results, so that link is valid until 1200 UTC)
> Fingrid has closed intraday trade in directions FI>SE1 and FI>SE3 to ensure system security and balancing capacities concerning the non-matching situation in the Finland bidding zone after Day-ahead trades. Update: Intraday trade in direction FI>EE closed
> Fingrid is prepared to initiate Intraday purchases, if necessary, to ensure system security and balancing capacities concerning the non-matching situation in the Finland bidding zone after Day-ahead trades.
People unfamiliar with markets are often surprised how often there are serious issues. It’s not uncommon for trades from a specific time period to be invalidated.
It's telling they regulate the price and won't allow it to go "too low", just like they halt trading on the stock exchange if things go down too much.
Free market my backside - can't let those profits dip!
Now they stop trading for (15?) minutes to let everyone make sure it's real and not their trading algorithms being stupid.
It's not about not letting the stocks crash to far, it's about making sure the pricing is accurate.
The Federal Reserve however is a different story. :)
If that were true, they would do the same thing if it was going up "too quickly".
To the surprise of nobody, they don't.
https://www.nasdaq.com/articles/all-about-lulds
Don't think the entire market has ever gotten unreasonably high due to a trading error.
It's not fully clear to me how the market work as a whole. I learnt that generators may have swap contracts with retailers and big users, which, based on my understanding, can distort the price to arbitrarily low, because generators get paid for the difference from the other side regardless of spot price, so they can set the lowest possible to ensure they can dump their power to the grid.
Also when it's predicted to be this low (or that high), there is likely some operations (market or not) behind the scenes to level the price. Usually when it gets to the time, the actual spot price has been in a reasonable range.
Imagined you could buy gas wholesale for a dollar a gallon and the price floor retail was two…. Guranteed to make money
It's funny, your comment reads like a business has some kind of right to make a profit, rather than letting the free market figure out if it should exist or not.
That's not a price floor, it would be a price ceiling on the second level supplier, and they could just choose not to sell. There's no way this scenario could happen except for subsidies and mandated production like the Defense Production Act.
> It's funny, your comment reads like a business has some kind of right to make a profit, rather than letting the free market figure out if it should exist or not.
You seem very confused.
Or is there some other limitation that prevents this?
In Australia, we’re moving towards dynamic operating envelopes for solar and other “distributed energy resources”. That potentially includes EVs and ACs.
The idea is the solar inverter is sent a dynamic stream of operating constraints by the distribution business based on network conditions.
It’s already being piloted in places like South Australia, which has very high solar penetration. Regulations are also moving towards requiring smart meters at all households (already the case in Victoria) and all new inverters be network connected.
(AFAIK the bidding resolver is a proprietary black box provided by a contractor.)
I know that after the war started spot-prices rose sharply and a lot of people made the jump. Some, unfortunately, locking themselves into relatively expensive prices.
[1] https://www.epexspot.com/en/market-data?market_area=FI&tradi...
> "We are working with other market parties to solve this extreme situation," it said.
Sounds like they are working on an agreement with the others to avoid their mistake turning out to be as costly as that.
It’s probably in the interest of all of the participants that this is resolved with a less costly outcome. After all, who knows which of them will be the one making a similar mistake next time. It’ll be good for them then, if they played nicely now as that can inspire how future happenings will play out.
The seller (Norwegian Kinect Energy) will need to negotiate with other major marker participants to bail them out. But it’s likely in the interest of everyone of not to let them collapse.
The markets would be in disarray if there would be undo button for a trade. Preparations need to be made by large industry participants for every daily allocation.
Let one who makes mistakes to pay for them.
However this does not prevent doing other trades on the top this trade to other direction. It is the question who catches the falling dagger and pays for the mistake of others.
See a similar story here
This is pretty clearly NordPool's fuckup. There's no way in hell this bid should have gone thru without human review. Seems clear that their UI is to some degree - in some critical spot - fragile, user-hostile, ill-designed.
You can say that in analogous cases, finance firms have been put out of business by bad bids caused by slipped fingers. Granted. But in this case you're throwing a wrench into a power grid, with the potential to cause a system disruption, in winter no less.
Myself I enjoy the comfort of a fixed rate contract. No efforts in trying to optimize consumption profile over days and weeks.
Happened to oil during early covid: https://www.nytimes.com/2020/04/20/business/oil-prices.html
There are targetted ways this is done when the difference is so big it threatens grid stability, but its often better to let the market handle the gross imbalance on longer timescales when grid stability is not threatened.
There are some things markets are very good at. This is one of them.
Ironic in a thread about the market making up a totally imaginary generation surplus.
10-20% of Finnish retail customers are on spot market based contract, and stand to save up to something on the order of 0.40€/kWh consumed (net after taxes and fees) off their electrical bill for the reminder of the day. I suppose every market-rational consumer would have a 10kW electric space heater outside melting snow on the ground, maxing out their supply.
Even a fairly small electric sauna is ~10 kW, so that's be just 10000 homes solving that problem.
Transmission cost and taxes will still be present, so this is more of a "hey it's going to be a societally good thing to go to the sauna today instead of tomorrow, consider it!" (Also, the saunas are definitely in use, don't worry, nobody's going to pass up the opportunity to say they went to the sauna for a good cause.)
A negative price indicates that the person sellers disposal technique is worse than the buyers disposal technique. In other words, the market is working as intended.
Nobody is complaining about the cost of garbage disposal where people are paying for having less (!) stuff.
This has happened a couple of times with oil pipelines as well.
Markets tend to figure these things out quickly though.
Commodities contracts that settle in the actual commodity and not in cash are actual obligations on both sides to deliver and take delivery. At some point in order to get rid of the obligation to take delivery at some point people are willing to pay to get rid of their contracts. Sometimes this happens when speculators make crazy bets during instability.
its like if you booked a prostitute to come over on Friday, on Friday you found out your partner was coming over and you need the full service sex worker to go somewhere else but have nowhere to send them, so you attempt to pay anyone to take the booking and everyone else is in the same predicament and eventually someone’s going to take the loss of having the prostitute around their partner and mess up their social situation but will be paid handsomely for it
relatable commodities problem
If this is easier for you to understand, you might have a problem.
thanks for pointing that out it’s a big plot hole and very much unlike the energy market. although maybe deposits would be an improvement to the energy market
The electric grid will always distribute the load _somehow_, but the way that happens if there's not enough buyers will have far reaching consequences that are uniuqe to this utility. AND you do not have full control of the production of electricity, which means you don't have the means to react ro a surge unless you have enough sinks distributed _across_ the network.
Some flat fee?
This is after the national grid operator planned to intervene as necessary and imposed some restrictions on trading [1], but those seem to have been lifted and the intra-day market is working (at 10× normal volumes).
> Fingrid is prepared to initiate Intraday purchases, if necessary, to ensure system security and balancing capacities concerning the non-matching situation in the Finland bidding zone after Day-ahead trades.
> Update 24.11.2023 12.:12 Market situation has normalized due to Intra day trading. Fingrid resumes normal operations. Fingrid asks BRP to manage their balance normally.
> Fingrid has closed intraday trade in directions FI>SE1 and FI>SE3 to ensure system security and balancing capacities concerning the non-matching situation in the Finland bidding zone after Day-ahead trades.
> Update: Intraday trade in direction FI>EE closed
> Update 24.11.2023 12:25 Intraday trade is open to all directions
[1] https://umm.nordpoolgroup.com/#/messages?publicationDate=all...
This has been widely reported as a market error, so many consumers might understand that the cheap electricity is not because there's a massive amount of electricity up for grabs but rather because some Norwegian company fucked up.
Perhaps if this was a real situation where there is actually a huge energy surplus that more consumers would actually "waste" electricity.
The frequency of the system is a clear signal about the demand/load match, and if it starts to drop more below some threshold of deviation, loads get disconnected from grid branches.
Of course there can be "interesting times" leading to cascading processes in the multiple interacting automatic failsafes, you can read up on post mortems of grid failures about what kinds of things can go wrong, eg https://en.wikipedia.org/wiki/Northeast_blackout_of_2003#Seq... .. which is why really want to preemptively do the controlled rolling blackouts instead.
The grid falling over would result in a harder, more uncertain and lengthy "black start" process, since plants need power to restart. See eg https://practical.engineering/blog/2022/12/5/what-is-a-black...
-203.40 per MWh, 5787 MW for 24h, 203.40578724 = 28M € - so about 5% of Knight Capital $440M
Of course this may not be all, as they still have to buy the electricity from somewhere that they are selling for negative price...